New Delhi, Oct. 18: Most states have closed ranks to torpedo the Centre’s proposal to freeze dearness allowance, as well as bonus to government employees, and a programme to swap debt.

With 10 states heading for polls next year, several chief ministers attending a meeting with the Prime Minister on the fiscal situation spoke out against the plan to freeze DA, which could affect 10 million employees.

Karnataka chief minister S.M. Krishna, who faces an election soon, said: “The solution is not to stop further DA (hikes), but to delink state salaries from those of the Central government and to fix scales depending upon each state’s capacity to pay.”

However, chief ministers of Tamil Nadu and Orissa, which do not face any election in the near future, favoured the move. West Bengal, too, favoured a DA freeze, though it pointed out that it was one of only two states that pay some kind of bonus to civil servants, teachers and municipal employees.

The real battle of the day was fought on the debt swap deal proposed by finance minister Jaswant Singh.

The debt swap plan — under which some of the states’ high-interest borrowings would have been retired in exchange for surrendering claims to a part of the loans they get from collections from NSS schemes — found few takers because the chief ministers felt they were being asked to make too large a sacrifice for too small a gain.

The deal would have given the states an interest relief of just Rs 950 crore a year on an interest payout bill of over Rs 65,000 crore annually. Besides, it would have forced them to forego 30 per cent of the loans they are eligible to pick from resources raised through the NSS scheme, which raises about Rs 1,60,000 crore a year.

Several state governments are in the throes of a fiscal crisis and some are unable to pay salaries on time because of the huge debt burden. Today’s meeting was scheduled to work out solutions to ease the crisis.

The ruling BJP at the Centre itself is a divided house on this controversial proposal. The lack of consensus today is expected to gift the Prime Minister an excuse to postpone the hard decisions. ( 0)